Vijay Mallya, the embattled chairman of United Spirits in which global spirits major Diageo has majority stake, has told the company’s board he will ensure operations are not affected after the United Bank of India’s move to name him a wilful defaulter.
At a meeting that went on till late on Wednesday in Mumbai, the newly constituted board of United Spirits took notice of United Bank of India's move to label Mallya a wilful defaulter.
"The RBI's master circular on wilful defaulters along with certain covenants in the loan agreements sanctioned by the company's bankers raise an uncertainty on the impact of this development on the availability of credit facilities to the company.
"The said director has assured the board that he will take appropriate steps to ensure that the operations of the company are not impacted.
"Having received such assurance from the said director and appropriate comfort from the controlling shareholders (Diageo) of the company, the financial statements have been prepared on a going concern basis," United Spirits said in a statement.
Mallya on Thursday denied allegations made by the grievance redressal committee of the United Bank of India and said he would take legal recourse.
"We disagree with the findings of the bank as we were not given any opportunity to represent our case. I have great faith in the judicial system in India and we will defend our position," Mallya said.
Yet, given the mounting pressure from other banks to get back the Rs 4,000 crore (Rs 40 billion) outstanding from Kingfisher Airlines, industry analysts said Mallya was cornered and might have to work fast to sort out this issue.
With Diageo extracting a commitment from Mallya, it is likely that Heineken too will seek a similar one to protect the interest of its business venture with Mallya.
Dina Wadia, partner at law firm J Sagar Associates, told Business Standard there might be unease among banks in dealings with United Spirits, United Breweries and Mangalore Chemicals & Fertilisers if Mallya’s remained on their boards.
"While there is no automatic step that
a person has to exit from other boards if termed a wilful defaulter, financial institutions will think twice before lending to such companies," Wadia said.
Mallya brushed aside concerns on the effect on United Spirits and United Breweries and said he would take it one step at a time.
"It will be premature to speculate on what other banks may be planning. We will address it as and when it may happen," he said.
Industry analysts said with more banks poised to launch action, Mallya may have to fall back on his holdings in India's largest beer company, United Breweries, in which his stake is worth Rs 6,000 crore (Rs 60 billion).
"That is the last resort he has. We will have to watch how Heineken pursues that option," a senior industry analyst told Business Standard.
Mallya said he would not sell stakes in United Breweries and Heineken was not interested in buying more.
Heineken has, however, added 4 per cent of the company’s stock to its holdings during the past year when lenders to the UB Group offloaded pledged shares in the open market.
The Heineken management maintains since there are two promoters in United Breweries, they bought the shares to guard against takeovers.
Diageo taken aback by claims of UB Group associates Diageo, which has acquired 54 per cent stake in United Spirits Ltd for Rs 18,500 crore (Rs 185 billion), has said during the investment it wasn’t aware of the claims now being made by certain business associates of UB Group.
A Diageo spokesperson said before the investment in USL, full due-diligence was undertaken, based on the disclosures of receivables owed by various third parties to USL.
“We were given express representations that all these receivables were recoverable in full.
"We were aware of the concern on recoverability based on the financial standing of the counter parties involved, in terms of these receivables.”
Diageo said, “At the time of our investment, we were not aware of the claims now being made by certain parties that they have advanced amounts to certain alleged UB Group entities and that the money owed by such parties to USL will now be paid only upon receipt of their dues from the alleged UB Group entities.”